Salary Most Common Eligibility for Incentives

April 29,
2010 (PLANSPONSOR.com) – A new Towers Watson study of incentive plan designs
shows executive-only incentive programs are now the exception rather than the
rule and that the most common eligibility factor is salary grade and not
position title.

According
to a Towers news release, in the drive to improve measurement and make compensation
practices more effective, organizations continue to adjust their annual
incentive plans. For example, while nearly nine out of 10 companies rely on two
or more performance measures, two-thirds now report using three or more
measures.

While
sales or revenue is the single most common financial performance measure, four
of the next five most common measures are earnings- or profit-based, and cash
flow is now tied for second most prevalent performance measure.

Finally,
there appears to be a shift in how companies are setting performance
expectations. A majority of companies now base goals on “expected business
conditions.”

Trends include:

Although the sum-of-targets approach to plan funding remains
the most prevalent method, results-based funding now runs a close second.

The most prevalent results-based funding measures are cash
flow and operating income; by contrast, in 2005, net income was the most common
results-based funding method.